Loss harvesting question. Is it worth it with ACA and a 6% tax rate? I am stumped.

[FANOFJESUS]

I am retired. My income is about 35k this year but on a normal year about 22k. Is it worth it to tax loss harvest in a 6% tax bracket and added help with the ACA this year? I know you can lose some money if the fund you sold goes up faster than the one you bought. I would sell a fund buy another then go back in the first fund in over a month. Part of me wants to do this the other part says it is not worth it.

 

[Animorph]

I don't know of a 6% tax bracket in the U.S., so I'm not sure how that would work. I assume that might be an all-inclusive average. You should be low enough in income to be in the 0% capital gains rate "bracket", so your capital loss benefit would mainly be -$3000 from your normal income each year for as long as you have losses to cover those amounts. That should save you about $300 in the 10% federal tax bracket, plus whatever your state taxes net.

The safety of the move depends on how close you can match the equity you are selling to a similar equity that is not identical. I've had success by using two index funds to replace a single index fund. I've had some successes and some failures with individual stocks. Calculate how much you are saving ($300?) versus how much your new fund would have to lag the fund you are in now to cost you the same amount. In these days of +/- 10% swings you might want a very close match.

 

[FANOFJESUS]

I don't know of a 6% tax bracket in the U.S., so I'm not sure how that would work. I assume that might be an all-inclusive average. You should be low enough in income to be in the 0% capital gains rate "bracket", so your capital loss benefit would mainly be -$3000 from your normal income each year for as long as you have losses to cover those amounts. That should save you about $300 in the 10% federal tax bracket, plus whatever your state taxes net.

The safety of the move depends on how close you can match the equity you are selling to a similar equity that is not identical. I've had success by using two index funds to replace a single index fund. I've had some successes and some failures with individual stocks. Calculate how much you are saving ($300?) versus how much your new fund would have to lag the fund you are in now to cost you the same amount. In these days of +/- 10% swings you might want a very close match.

I just pay state taxes because of low income. You are right it is easier to do if the market is not swinging so much. Loss harvest looks great in the high bracket but not so much at 6% with more ACA help.

 

[SecondCor521]

Depending on your health situation this year, one factor in favor is if your new AGI would be below one of the breakpoints for cost sharing reductions (150%, 200%, and 250% of FPL).

The ACA premium subsidies that you're getting lower your monthly premium. If you're on a Silver plan, the CSRs are in addition to the subsidies and typically reduce your deductible and OOP maximum.

If you think you'll be utilizing your health insurance a lot, the CSRs could be pretty beneficial.